Outsourcing of Business – Potential Pitfalls

Today's globalization, increased competition and rapid technological changes have led most companies to view outsourcing of business as the solution to staying competitive. However despite the fact that outsourcing reduces operational costs and in some cases can help the organization increase its efficiency; it also has negative long term effects that could affect not just the company but the society it operates in as well. A few of the risks and negative impacts that outsourcing exposes organizations to include; unmonitored competition, increased unemployment, unscrupulous providers and possible organizational failure in the long run.

Increased unemploymentOutsourcing of business processes is a relatively new phenomenon that was sparked off by the advent of internet business. As such the full impact of the practice is as of yet unknown, nevertheless it is not the win-win situation that most economists point it out to be. The first major problem of outsourcing can be attributed to the government's lack of a clear and concise policy that governs the practice. This has bred unchecked and unfair competition among companies in the industry. The tenets of free market economies state that governments should let market forces govern the market, however there is also a need for guidelines that safeguard the existence of small and emerging enterprises. A need that is being largely overlooked thanks to the cut throat competition brought about by outsourcing.

Impact on the local job marketOne of the other reasons that organizations give in a bid to justify outsourcing of business to offshore locations is that the labour force is not only cheaper but more educated than the domestic labour market. While this may be beneficial to the third world countries; such as the Philippines and India that get most of the outsourcing work, the impact on the domestic job market is drastic. This had led to most company employees being unsure of their current job security and has thus resulted in low morale levels in organizations. In addition there is the possibility of employees who have lost their jobs going to work for the competition.

Unscrupulous providersThe outsourcing revolution has led most companies to believe that there is no other alternative. So in most cases small companies that can't afford to set up their own outsourcing departments have to rely on the services of outsourcing companies. However these outsourcing companies handle the business processes for a number of companies, including organizations that may be rivals. In such a situation outsourcing of business may lead to organizations unwittingly exposing their operational secrets. Unscrupulous outsourcing providers may also sell organizational secrets to competing companies or collate the data and use it to start their own business.

Aside from the reasons mentioned above outsourcing may also contribute to changes in the way certain organizational processes are conducted. This leads to a decrease in the efficiency of the company, due to time lapses and delays occasioned by poor coordination which could result in potential conflicts between the company and consumers, the company and the employees or the company and its outsourcing providers. Though outsourcing of business is being touted as the solve all for reducing organizational costs, it should also be noted that in some cases the overall cost of the practice may be more than the additional costs that would have been incurred.